Patience vs. Urgency with Personal Finance

There are many people, including myself, that have the belief that life truly is a journey. To put a running spin on it, this would mean life is a more like a long marathon than one big sprint.

Going gangbusters every day burning both ends of the candle isn’t a sustainable approach, and there are sacrifices to be made along the way. Its possible working long hours can be bad for your health too. Sometimes, it’s all about balance, at least from my experience.

That being said, I’ve come to look at things another way too. While I still buy into the approach I just mentioned, I also think that there are times where it can be beneficial to move fast without any haste. Taken in that context, maybe life isn’t a marathon, but maybe a series of sprints along with periods of walking. Okay, maybe these are too many metaphors to handle:) But what I’m getting at is that sometimes it’s smart to be patient and take our time, while other times it’s good to hustle and get things done as quickly as possible.

When it comes to money and our finances, I think it’s important to figure out when we need to take the right approach. Here are a couple of examples that have come to mind for me, for each.

Being Patient with Money

Panicking With Stocks

For some reason, there are many people that get scared when stocks decline. As in, fearful that they will lose everything. If the market declines 20% over a couple of years, that’s no fun for most of us. But some folks panic and get scared that their entire investment portfolio will be reduced to ashes. Thus, they sell when things are headed downward.

Tell me, when have stocks as a whole declined to zero? Now, individual stocks have the possibility of declining to low levels permanently, and destroying wealth. But this is why we focus on diversification and investing in large baskets of stocks or even index funds. When tracking the market, you’re highly unlikely to permanently lose wealth based on historical data.

For example, do you remember the fear regarding stocks and the U.S. credit downgrade in 2011? There was fear that stocks would plummet, and they did in fact decline for a short period of time. The sky was falling! Except, it really wasn’t. It actually turned out to be a money-making opportunity, as prices rebounded and the market went back up. Those that sold in a panic lost out.

The same could be said for those selling at the market depths of 2008 and 2009. Things recovered. Even when looking at the financial impact of the Japan tsunami of 2011, we can see that this terrible tragedy did not cause a long-term impact on the NIKKEI. After an initial decline, it bounced back in a matter of a few weeks.

Bottom line: think long-term with stocks, and realize that with the broader market there will be ups and downs. We don’t want to get caught selling on the downswing.

Buying Expensive Things

I think this is a trap that many people very easily fall into. There is a desire to feel like we have made it, to live the good life we see others living. The reality is that many of these are big hat, no cattlepeople. Meaning, they have material things that convey an image of wealth that is misleading considering how modest the savings or income they have actually is.

I have several friends that bought highly expensive cars when younger. One I’ve known forever since childhood, and he has always liked nice cars and driving very fast. He bought a car right after graduating college that was probably 3/4 of his annual income in terms of its purchase price. Another friend bought an expensive new SUV within a year of graduating, in order to “feel like I’ve arrived”.

Thankfully, both people rebounded and are now doing really well for themselves. They’re smart guys. But if they had just driven modest cars at that time and invested that incremental money that they had spent, think about what that could grow to in the future after investing?

This same concept can be applied to many other things, such as vacations, clothes, and homes. With respect to the latter, I think that buying a “dream home” before having the means to buy it can be a dicey proposition. Look at the people that stretched to buy a home before the housing bubble, only to see their mortgages go underwater? Better to buy a home based on what you need, and within pre-defined financial parameters. Sometimes emotions and money getting mixed up can lead to some unintended consequences!

Bottom line: If we don’t have the money to buy expensive things, then we shouldn’t. Being impatient with the desire for upgraded purchases can only hurt one’s long-term finances.

Having a Sense of Urgency With Money

Saving Money for Retirement

When someone is 30 to 40 years from an age that is generally considered with the “retirement” age bracket, it seems like a long time in the future. I know, as I have felt the exact same way.

The thing is, time really moves fast, and seems to accelerate even more with each passing year. Putting off saving and investing can really be harmful in the long run. Conversely, the better we are at putting money away when young, the better our finances will be in the future. There is something to be said for the time value of money, as barring deflation a dollar today is worth more than a dollar tomorrow.

For example, let’s say two people, John and Jane, are both 25 and want to ultimately retire at 55. John enjoyed traveling, buying a nice car, and all the latest gadgets from ages 25 to 30. Meanwhile, Jane cuts out those and similar extras and instead focused on saving more money during those years, to the tune of $5,000 per year. Then John gets serious at age 30 and starts to save and invest at the same rate as Jane.

What does that $5,00o per year for those 5 years get Jane? Reinvested and compounded at 8% annually, she would have greater than $200,000 more than John by age 55. Just for setting aside that modest amount of extra money each year and investing it in her 20s. By taking his time and not worrying about the future, John would lose out on a big opportunity.

Bottom line: understand that time is a powerful factor in growing net worth, and the earlier we save and invest our money, the better. Start ASAP!

Paying Off Debt

When in debt, we are impacting our net worth in a negative way. Even if someone owns a home worth $300,000 for example, if there is a $250,000 mortgage on it, the net ownership comes down to $50,000. When we start adding student loan debt, car loans, and – worst of all – consumer debt, the picture can get murkier. How can we build wealth if we carry such non-valued added liabilities on our personal balance sheet?

I’d say the best thing to do is avoid debt, and try to work toward a goal of debt-free living. It may not be an overnight process, but eventually we can get there. The sooner the better, as interest charges make debt balances grow. It’s almost like a spiral with a gravitational pull downward; debt can get more onerous if not addressed quickly. Effectively managing it and paying it off can help us move back in the right direction faster.

Bottom line: have a sense of urgency in staying out of debt and paying off existing debt quickly, in order to help you build long-term financial stability and prosperity.

My Questions for You

Do you balance patience and a sense of urgency with your finances?

How do you approach each of the 4 examples noted above?

Are there any other areas of personal finance in which you think its important to demonstrate either patience or a sense of urgency?

Comments

In the past, I have gotten “overeager” and felt an unnecessary sense of urgency to sort out my finances now, now, NOW. Over time, I have had to swallow my pride and have a few rough months (financially speaking) in order to make the best decisions for my family. I’m the type of person who likes to solves problems immediately and if (for example) I see a stock dropping, I want to jump ship immediately. However, by just taking a breath and looking at the big picture, I have learned to settle down and have seen a lot more success as a result.

I’m not really a patient person, but I have noticed that lately I’m being more careful with my spending and all other financial decisions. It’s not always easy, but not rushing into things can make a huge difference.

A person cannot control a stock’s or the stock market’s return. He can control his savings rate, his asset allocation, and investment longevity, which you pointed out. Saving and investing over the long term, like 30, 40, 50, and more years, is the way to reach one’s goals, and that takes patience.

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Disclaimer

We are well meaning folks that are not investment professionals or financial advisors. Please feel free to have fun here, and take this information in the spirit of entertainment, as it is not financial or legal advice, For that, seek an appropriate professional. Your actual financial decisions are your own responsibility. Thank you.